The Bundesbank on Friday slashed Germany's growth forecast for next year, citing widespread uncertainty and difficult economic situation in parts of the euro area.

Gross domestic product is now expected to grow 0.4 percent in 2013, slower than 1.6 percent expansion forecast in June. This year, growth is estimated at 0.7 percent, down from the previous forecast of 1 percent.

Growth is seen picking up to 1.9 percent in 2014. "The phase of weak economic momentum will not last very long and that Germany will soon return to a growth path," the bank said in its December monthly report.

The bank also noted that economic activity will likely fall in the final quarter of 2012 and in the first quarter of 2013. "The main factors in this are the adjustment recessions in the euro area, which are severe in some countries, and the slowing of the global economy," the report said.

Nonetheless, the central bank expects the German economy to overcome the temporary lull without major damage to the labour market, given its sound underlying health. "The current projection is characterised by a high degree of uncertainty," the bank pointed out.

Bundesbank sees inflation at 2.1 percent this year, which is then expected to fall to 1.5 percent next year. In 2014, inflation is estimated to rise 1.6 percent.

Excluding energy prices, the inflation rate would rise to 1.8 percent in 2014 from 1.6 percent in 2012 because of higher wage agreements.

Yesterday, the European Central Bank cut its economic forecasts for the euro area. The central bank projects GDP contractions of 0.5 percent this year and 0.3 percent in 2013. The economy is expected to recover in 2014 with a growth of 1.2 percent.

"It appears probable that the economic situation in the euro area will stabilise over the course of the coming year, and that a nascent recovery will follow, if only hesitantly at first," Bundesbank said in today's report.

"The precondition for this is that the sovereign debt and banking crises in the euro area do not further intensify and that consolidation and reform efforts continue," the report added.

It also warned that if "global economic growth remain below expectations or the sovereign debt crisis escalate further in some countries, it is probable that the German economy may follow a weaker course than the one assumed in the baseline scenario."

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